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"SCALE UP INDIA” mission needed for MSMEs to scale up and become high growth champion enterprises

"SCALE UP INDIA” mission needed for MSMEs to scale up and become high growth champion enterprises

In the last few weeks, MSME sector finally appears to have become the buzzword in the corridor of economic policy making in India. Significant policy decisions with far reaching consequences have been announced.

Investment in plant and machinery has been junked and new definition on the basis of turnover criteria – partly aligned with international definition norms- has been approved by the cabinet. Once approved by the parliament and notified, this is likely to take away various problems and discrepancy associated with investment in plant and machinery criteria. There won’t be a need for the entrepreneurs to get their plant machinery investment certified to be classified as “MSME”. Large corporate (both public and private) would find it easier to find SMEs of reasonable size and capacity to meet their offset and procurement quota.

This is not to say that “new definition” wouldn’t have any flip side. It may lead to crowding out of micro and “small of small” enterprises from “priority sector lending quota”, “MSE public procurement quota” and other public support schemes and funds targeted exclusively at micro and small entrepreneurs. However, in totality this is a welcome move and may prove to be a good tool for “SME scale up”.

Budget 2018 has extended the provisions of “fixed term contract hiring” beyond apparel sector to all sectors. Government has also announced that it would take care of employer’s share of 12 % of the wages in EPF for 3 years for all the new employment created in all sectors. Both the policy provisions are not MSME specific, but the sector is expected to be the biggest beneficiary.  Large number of SMEs having strong variations in business cycle would be able to hire the workers as per the demand in a transparent and ethical manner. Enterprises on the growth path would also be motivated to hire full time employee for some of the regular functions.

Qualified human resource is one of the important competitiveness factor driving the business growth, both these changes could help SMEs to start their scale up journey in a more systematic and transparent manner.

There is no doubt that these measures are significant but in no way sufficient for MSMEs to substantially scale up their business operations, which is a necessity for India to achieve its economic and social objectives.

The big picture of MSME sectoral space in India appears stagnant. Most of the entrepreneurs get either easily satisfied and “don’t want to grow” – once they attain a certain level or are busy with managing all necessary factors of constraints to “safeguard their limited operation” or “wish to grow but don’t know how to grow”. There is very few known scale up/ high growth stories or acknowledged SME world leaders in their chosen field of technology or service.

Enterprises continue to complain about lack of access to basic competitiveness factors i.e. finance, skilled labour, technology, market etc., and support system continues to respond in the classical way of trying to address so called “market failure” and targeting all enterprises. Impact of large number of public support schemes with relatively small budget provisions, and aiming to enhance MSMEs competitiveness and growth individually or collectively by focusing on one or more than one of the following factors (Access to Market, Access to latest Technology, Adoption of Process & Productivity Improvement, Adoption of Certifications & Standards, Enabling Innovation, Access to Finance, Creation of Common Infrastructure, Enhancing skills) is widely acknowledged to be sub optimal.

Adoption of a differentiated approach, which specifically targets and extends support to “potential high growth enterprises”, is likely to generate more value (economic contribution, employment etc.) for every rupee spent through the public support programmes.  It is widely acknowledged that three most important enablers of business growth are 1) internal capacity and capability of the firm 2) external business and regulatory environment and 3) vision and drive of the entrepreneur.

Enterprises which are either already growing “above the normal rate of business growth” or “have the will to grow but need support to achieve high growth” should have to be specifically targeted. With effective roll out of GST mechanism, it is much easier to generate reliable enterprise growth data sets and it would be easy to identify “potential high growth enterprises”- those who are growing constantly say 3 years at a rate of x plus normal growth rates.

Policy makers, support institutions and other stakeholders including SMEs need to think about new “ways and means” to become high growth champion enterprises. It is high time now that our too much focus on micro, small and start up to generate innovation, growth and employment is replaced with innovation system approach. What should matter is creation of high growth champion enterprises – of whatever size of the firm they are.

Time is right for a special and focused “SCALE UP INDIA” mission.

*Amit Jha, The author is an MSME Entrepreneur Expert, the views are personal.

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Amit Jha

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